While mortgage rates could fall closer to 6% by the end of the year, the days of rates in the 2% and 3% range are in the past and not in the near future. “In the current market with elevated rates, we see people doing refinances for very specific reasons, including needing to tap into the equity of the home, taking someone off of a mortgage or because their adjustable rate mortgage has expired,” said Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. But last year’s run-up in mortgage rates led to a drop in refinancing activity, and homeowners who would’ve sought cash-out refinances have instead tapped into their home equity for cash, turning to home equity loans and home equity lines of credit. When mortgage rates were at historical lows around the pandemic, many homeowners refinanced to get lower rates. But if future inflation data is higher than expected, mortgage rates will likely increase in response. If the year-over-year inflation rate continues to inch closer to 2% - the Fed’s rough target - and the central bank is able to hold rates steady and eventually cut them, mortgage rates may see some relief. The steady increase in mortgage rates has been influenced by several factors, including the Fed’s rate hikes and inflationary pressures.
Depending on the state of the economy, the central bank initiates rate hikes and cuts to either rein in or encourage consumer spending and borrowing. Since March 2022, the Fed has raised its benchmark federal funds rate, from near zero to a range of between 5.25% and 5.50%, with the most recent hike on July 26. The big story behind the mortgage market has been inflation and the Federal Reserve’s ongoing battle to tame it. If you’re eager to refinance, it could make sense to do so now - but that all depends on your old and new interest rates, and what you plan to do with the cash. This year, refinance rates have eased slightly, but they’re still nowhere near the record lows of 20. Refinance rates rose substantially last year as inflation skyrocketed and the Federal Reserve began hiking interest rates in an effort to rein it in.
Elevated mortgage rates are making it difficult for homeowners looking to refinance to a rate lower than the one on their existing mortgage.
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